Optimism on money markets

As the dust settles after the General election and the building of the new Government’s cabinet, Leyton Hunt, from Fylde stockbrokers Hargreave Hale, looks at the effect on the money markets.

“Even the staunchest Conservative would have been surprised by the result of last week’s General Election. Investors certainly were, with the FTSE100 rising as much as two per cent on the news that David Cameron had secured a majority.

Even the staunchest Conservative would have been surprised by the result of last week’s General Election

“The positive market reaction was as much to do with the removal of weeks of uncertainty over the make-up of a coalition government as it was to do with David Cameron remaining in Downing Street.

“Markets usually respond positively in the immediate aftermath of a Conservative election victory, but there are still unanswered questions which investors need to consider.

“Probably the biggest unknown going forward is the impact on the UK economy of an EU referendum and, on a more micro level, which sectors are likely to prosper under a Conservative government.

“The answer to the first question will only be known in the fullness of time.

“It is, however, likely that armed with some concessions from Brussels, the Conservatives, alongside Labour and other pro-European parties will back the ‘In’ campaign.

“This would leave UKIP as the only prominent campaigner of the ‘Out’ campaign. Recent polls suggest a comfortable win for the ‘In’ campaign, but if the General Election taught us one thing it was never to rely too much on opinion polls!

“For what it’s worth, we believe staying in the EU is better than leaving, and we would expect markets to react positively to this outcome too.

“Looking more closely at the UK stock market, we would expect previously underperforming sectors, such as utilities, financials and transportation, to benefit from a ‘Tory’ government as they were sectors which the Labour party targeted for increased regulation.

“We also expect house builders to flourish over the next few years given that Help to Buy has been extended.

“Overall, we view the election result as a positive for the UK stock market, which, when combined with positive forecasts for the UK economy and low interest rates, leaves us optimistic for the remainder of 2015 and beyond.”